Drive for Quick USPS Rate Settlement Questioned

The U.S. Postal Service's push for a rapid settlement on its proposed 5.4 percent across-the-board rate case has hit a few snags, and some of the resistance is coming from influential members of the mailing community.

Many mailers fear that a delay in the rate case could cost the industry more money in the long run. However, others are not convinced that bringing the case to an expedited conclusion is in their best interest.

Valpak Direct Marketing and the Association of Presort Mailers have not stated a position on a settlement but have expressed reservations. The American Postal Workers Union also withheld its support, and the Office of the Consumer Advocate -- a watchdog organization within the Postal Rate Commission -- has filed papers in opposition to shortening parts of the rate case process.

Rate cases typically take a year or more from filing to implementation. The USPS filed for its current case in April. Normally, the earliest implementation date would be April 2006. However, there may be reasons for mailers to want a quicker case this year.

The USPS needs to pay $3.1 billion into an escrow account by Sept. 30, 2006, as required by the Postal Civil Service Retirement System Funding Reform Act of 2003. If the postal service waits until April 2006 to raise rates, it will need to raise money faster to meet the escrow requirement, said Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association.

A delay in implementing the case could mean a rate increase higher than 5.4 percent next year, Cerasale said. The USPS hopes to increase rates starting Jan. 16, 2006. The DMA thinks that a settlement is "the best way for our membership, as a total, to go forward," Cerasale said.

However, not everyone buys into the need for urgency on this rate case. The last case, in 2001, was settled but that was in response to the financial emergency created by the Sept. 11 terrorist attack, said Valpak attorney William Olson. This time, the USPS is asking for more money to cover employee retirement benefits, which at any private company would be considered routine costs, he said.

The OCA also doesn't see the urgency to raise rates, said Shelley Dreifuss, director of the office. The USPS is expected to finish the current fiscal year 2005, which ends Sept. 30, with net positive income of $2.54 billion, according to the OCA.

All it would need to cover the rest of the escrow requirement would be to raise another $500 million, Dreifuss said. According to the OCA, that could be done with a rate increase of a little over 1 percent.

Another argument that could stall a settlement centers on cost-allocation methodologies used to allocate billions of dollars in costs at the USPS. The issue is important because postal law lets the USPS set rates that include only the actual cost of delivering mail plus a limited markup for "unattributed" or institutional costs.

By the postal service's own estimate, under its proposed rate increase, the markup on Standard Enhanced Carrier Route, or ECR, mail would be 144 percent, Olson said. It would have the highest markup of any class of mail. Valpak is one of the nation's largest users of Standard ECR mail, along with ADVO.

Olson said the rate case appears to violate the law. It marks up some mail classes too much while allowing other classes to avoid carrying their share of the burden, he said.

The USPS has insisted on making the rate case a battleground over cost methodologies, Dreifuss said. The OCA and mailing community have urged the postal service not to include such a controversial issue in rate cases, but the USPS has declined because the rate case process gives it substantial advantages over the other parties involved, she said.

The OCA won't have other opportunities to investigate cost methodologies, so it needs to examine them in the rate case and get as much time as possible to do so, Dreifuss said.

"We're not going to give up a single day to learn more about them," she said.

As for the Association of Presort Mailers, its lack of enthusiasm stems from experience, said Joel Thomas, the association's executive director. In the 2001 settled rate case, the association accepted a compromise on workshare discounts, Thomas said. However, when all other aspects of the case were settled, the APWU -- which opposes "excessive" workshare discounts -- refused to cease litigation, he said.

As a result, the Association of Presort Mailers was left alone to defend a workshare discount compromise that amounted to less than it wanted in the first place, Thomas said. He said he hasn't been convinced that a settlement won't leave him in the same position this year.

"Whether you settle or not depends entirely on whether anybody stays in and attacks," Thomas said. "Whether or not that is going to happen [now] is not entirely clear."

Workshare discounts are also why the APWU hasn't come out strongly for an expedited settlement. The union "adamantly" opposes workshare discounts that exceed costs avoided for the USPS, and it is examining whether a settlement would hinder its ability to oppose such discounts, said Darryl Anderson, general counsel for the APWU.

"We're asking for information and monitoring what the other parties are doing," Anderson said.

Scott Hovanyetz covers telemarketing, production and printing and direct response TV marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters

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